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Is Opko Health, Inc. a Buy?

By Keith Speights – Apr 7, 2018 at 9:33AM

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The healthcare stock is definitely down, but is it out?

Is there any reason to be optimistic about Opko Health (OPK 5.24%)? After all, the stock has plunged nearly 60% over the last 12 months. Opko continues to lose a boatload of money every quarter. As dark as it seems for Opko, though, there are some opportunities for the company.

Investors who give heavy weight to those opportunities think better days lie ahead for Opko. Others might see the company's problems and have little hope the situation will improve. Is Opko Health stock a buy? Let's look at the optimistic and pessimistic viewpoints of the company's situation. 

Man scratching head while looking at question marks drawn on a chalkboard

Image source: Getty Images.

An optimistic angle

Opko optimists can point to several reasons the best could be yet to come for the company. At the top of the list is Rayaldee. The drug has admittedly gotten off to a very slow start after winning FDA approval in 2016 for treating secondary hyperparathyroidism (SHPT) in adults with stage 3 or 4 chronic kidney disease (CKD). However, there are reasons to be encouraged about Rayaldee's future.

For one thing, it took a while to secure insurer coverage for Rayaldee. Now, though, more than 79% of patients have insurance plans that provide reimbursement for the drug. Opko didn't start out with a large sales team to reach out to physicians. The company increased its sales force from 35 to 64 representatives in October 2017, a move that should pay off over time.

Another product that could still be a big winner for Opko is its 4Kscore blood test for detecting prostate cancer. Opko Health launched TV ads in northeastern states in November 2017 and expanded the TV campaign to Florida in February. The company has also beefed up its directed digital media advertising efforts. 

While Opko's diagnostics business, BioReference Laboratories, has floundered recently, the company has taken steps to get things in order. Opko has made leadership changes and is currently recruiting a new president for BioReference. The lab's GeneDx subsidiary, which focuses on testing rare and ultra-rare genetic diseases, looks like a great growth driver for the business.

Then there's Opko's pipeline. The company is waiting for FDA approval of its Claros point-of-care prostate specific antigen (PSA) test. A late-stage clinical study of its human growth hormone product hGH-CTP in treating children is in progress. Opko also has several products that are either already in phase 2 development or that will be in phase 2 studies later this year. 

Also, investors who are bullish about Opko's prospects would be quick to note that the company's CEO, Phillip Frost, is probably the most optimistic of all. Frost, a billionaire who has been successful in building other healthcare companies, has invested a significant chunk of his personal fortune in Opko. It's certainly a good sign that Frost continues to be the biggest believer in Opko's potential. 

A pessimistic perspective

Pessimists about Opko would probably simply respond, "Too little, too late." 

Rayaldee has been on the market for nearly 18 months. Opko didn't record any revenue for the drug until the fourth quarter of 2017. And that revenue totaled a measly $9.1 million, including $6.2 million that had been deferred from prior quarters.

Opko's 4Kscore test has been on the market even longer. It was launched commercially in 2014. During the fourth quarter of 2017, a grand total of 20,600 of the tests were performed. That's still an awfully low volume for a test that has been available in the U.S. for four years.

Although BioReference Labs could see growth from GeneDx, core clinical laboratory volume is expected to continue declining. A leadership change isn't likely to change that trend.

Skeptics about Opko's pipeline would probably be quick to mention a significant setback in 2016 for hGH-CTP in treating adults. Also, several of the company's candidates won't be able to contribute financially for several years, even if they're overwhelmingly successful in clinical studies.

Making the call

Is Opko Health a buy? I think you can be relatively optimistic about the company's long-term potential and still answer "no." 

Rayaldee and 4Kscore could finally deliver on their potential. BioReference Labs could get its act together. Opko's pipeline products could become big winners. But all of that will take time. Meanwhile, there are plenty of stocks that offer greater growth prospects with less risk.

In my view, there is some legitimate reason for optimism that Opko can turn things around. However, I also think there is legitimate reason to be pessimistic about the near-term prospects for the company. I think the safest call on Opko stock is to hold off to see if the light at the end of the tunnel actually appears. 

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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